Buffett Stock BYD Sees Sales Slump After Tesla (TSLA) IPO

Electric vehicle company sold just 35,356 cars in June

Jul 8, 2010, 8:27 pm EDT | By Paul Ausick

Buffett Stock BYD Sees Sales Slump After Tesla (TSLA) IPO

Chinese auto and battery maker BYD Co. Ltd. (OTC: BYDDF) reported a nasty surprise today: sales in June fell 21% from May sales. The company sold just 35,356 cars in June compared with 45,020 in May. In June 2009, the company sold 34,265 cars, so year-over-year sales actually rose for the month by 3.2%. For the first six months of 2010, BYD has sold 289,014 cars, a rise of 63% over last year’s sales. A division of Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) owns 10% of BYD.

Earlier this year the company said that it plans to sell 800,000 cars in 2010, double the 400,000 it sold in 2009. Even the weak report for June did not cause the company to back off that forecast. A bit more caution might have been called for, given the beating that shares in Tesla Motors, Inc. (NASDAQ: TSLA) in the week since its IPO. Tesla has now gone from a hot premium IPO to a busted IPO trading under its initial offering price.

BYD has benefited from Chinese government incentives like a reduction in the small-vehicle tax, and stands to gain even more when incentives kick in for purchasers of electric vehicles. BYD expects to release its all-electric ‘e6′ model before the end of this year.

Most auto industry analysts expect Chinese demand to soften in the second half of 2010 causing manufacturers’ inventory levels to swell. If that turns out to be the case, BYD will really have no option but to reduce its aggressive full-year forecast.

The company, however, believes that its introduction of four new models in the next six months coupled with historically better sales numbers for the second half of the year will pull the company to meet its forecast.

Compare BYD’s forecast with some recent comments from the CEO of Tesla Motors. Tesla expects to build about 20,000 of its $108,000- roadsters annually by 2013. The company’s sedan, likely to cost around $50,000, is not expected to go into production until 2012.

BYD’s e6 is a horse of a different color. Smaller and lighter, it is expected to be priced at about $40,000 in the US and slightly more in China. The Chinese government will also offer a subsidy of around $8,800 for all-electric cars like the e6.

The BYD e6 sports a greater range than either of the Tesla cars and its recharging time is much quicker. The battery pack is cheaper because it does not use cobalt, and it is far less likely to explode in the event of a crash.

BYD and Tesla are not really competing for the same customers, but the comparison could be instructive when the e6 enters the US market. Meanwhile, in China, BYD has got to be looking for something to give its sales the boost required to hit its forecast. The e6 is not it, and shined-up new models probably won’t do the trick either.